Risk management for Keynesians

John Maynard Keynes. Photo Credit: Public Domain
John Maynard Keynes. Photo Credit: Public Domain

Keynes is used many times to justify the growth of the volume of activity of states in economy; however, it is not based in his thinking. He wrote in “The End of laissez-faire” the following thinking:

“The most important Agenda of the State relate not to those activities which private individuals are already fulfilling, but to those functions which fall outside the sphere of the individual, to those decisions which are made by no one if the State does not make them. The important thing for government is not to do things which individuals are doing already, ad to do them a little better or a little worse; but to do those things which at present are not done at all”.

For Keynes the activity of states would be defined by technical reasons instead political ones:

“We must aim at separating those services which are technically social from those which are technically individual”.

Many current economists defend the increase of the intervention of states in economy as a way to preserve the economic growth; however, they usually forget these important Keynesian sentences.

Keynes would not accept states looking for activities in the private field in order to be replicated by public institutions, however, the opposite thing could be reasonable. He would not consider this one as a way to improve the efficiency of economy. His critique to capitalism is not related to technical questions, but moral ones if it produces an increase of poverty:

“For my part I think that capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable”.

A private economic activity that does not increase substantially the differences between people in an unfair way would not be objectionable from any viewpoint, both economic and political.

Related to risk management, Keynes understands economic risk as one of the main economic troubles of our societies:

“Many of the greatest economic evils of our time are the fruits of risk, uncertainty, and ignorance”.

As other classical economist, Keynes makes a distinction between risk and uncertainty. You must remember that risk is something that can have an assigned probability, and uncertainty is related to events where we cannot assign a probability. It is very illustrative that he put ignorance at the same level of risk and uncertainty. Ignorance of people is a huge source of complexity in a society, and it lets that a few people can perceive a great amount of money taking it from many other people.

Although he has not a theory of complexity management, he can see the problem of complexity produced by nationalization of industries. Related to complexity, he understands nationalization as something driving to a very complex society to be managed:

“We must probably prefer semi-autonomous corporations to organs of the central government for which ministers of State are directly responsible”.

Keynes is aware that ignorance in the political field drives to odds arguments to justify certain policies in every political party:

“Confusion of thought and feeling leads to confusion of speech. Many people, who are really objecting to capitalism as a way of life, argue as though they were objecting to it on the ground of its inefficiency in attaining its own objects. Contrariwise, devotees of capitalism are often unduly conservative, and reject reforms in its technique, which might really strengthen and preserve it, for fear that they may prove to be the first steps away from capitalism itself”.

For Keynes, capitalism cannot be critiqued from an economic viewpoint, however, he think that political aims can drive the economic policies. This thinking was shared by more liberal economists like John Stuart Mill. For both of them, moral reasons can be over technical ones, but this is the role of politics instead of economics.

Mixing both fields only produces confusion and complexity. Moral aims, if there exist, must be justified from moral reasons instead of trying to do it from economic ones.


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